BlackBerry to Lobby Government Over Foreign-Takeover Rule

BlackBerry Ltd. (BBRY) is preparing to
lobby the Canadian government over foreign-takeover issues amid
investor concern that a domestic buyout of the struggling
smartphone maker won’t happen.

The company has registered to meet with lawmakers to
discuss the Investment Canada Act, which sets rules for foreign
acquisitions of local companies, according to federal lobbying
documents. The government automatically reviews any takeover bid
of more than C$344 million ($332 million).

The push comes amid speculation that Toronto’s Fairfax
Financial Holdings Ltd. (FFH), BlackBerry’s largest shareholder, faces
long odds in putting together a homegrown bid for the company.
While the investment firm is talking to Canadian pension fund
managers to build support for a deal, it hasn’t yet had success,
according to a person with knowledge of the discussions. Credit-default swap trading suggests that investors are increasingly
doubtful that Fairfax will prevail with the effort.

“Why would Canadian pension plans buy this thing?” said
John O’Connell, chief executive officer with investment firm
Davis Rea Ltd. in Toronto, which doesn’t own a stake in
BlackBerry or Fairfax. “There’s no indication that this
business has bottomed, and every indication to show they
continue to lose market share.”

BlackBerry executives made the disclosure about discussing
the Investment Canada Act with lawmakers and government
officials in the past week, according to the lobbying register.
Before that, the act hasn’t been listed as a subject of interest
to the company for years.

Government officials reviewing any takeover will be
sensitive to the fact BlackBerry is the biggest corporate
spender on research and development in the country and a major
employer, said Anthony Baldanza, a Toronto-based partner at law
firm Fasken Martineau DuMoulin LLP. BlackBerry may have to prove
the business would be better off in the hands of a foreign
acquirer, while addressing potential national-security concerns
in Canada and the U.S, he said.

“If we were discussing this five years ago, when
BlackBerry was a leading smartphone supplier and a national
champion, it would have been very difficult,” Baldanza said.
“The situation has changed dramatically.”

Lenovo, Microsoft

Adam Emery, a spokesman for Waterloo, Ontario-based
BlackBerry, declined to comment, as did Fairfax President Paul Rivett and Microsoft spokesman Peter Wootton. Doug Augustine, a
spokesman for Beijing-based Lenovo, didn’t immediately respond
to a request for comment.

Lenovo, the world’s largest personal-computer maker, said
in January that it was assessing potential acquisition targets,
including BlackBerry. At the time, Canadian Finance Minister Jim Flaherty said certain local technologies were off-limits to
foreign buyers. The government would look “carefully” at a bid
from Lenovo, he said. BlackBerry operates secure servers for the
Canadian and U.S. governments, which would put additional
scrutiny on a Chinese deal.

Nokia Deal

Microsoft also is a potential buyer, even after its Sept. 2
agreement to buy Nokia Oyj (NOK1V)’s mobile-phone business, people with
knowledge of the situation said last week. Pairing BlackBerry
with Nokia would let the software company roll up the industry’s
smaller competitors, potentially creating more of a threat for
Apple and Android.

Still, sealing a deal for BlackBerry may not be easy --
either at home or abroad. JPMorgan Chase & Co. (JPM) and RBC Capital
Markets, BlackBerry’s bankers, spent close to a year quietly
canvassing potential acquirers without success, people with
knowledge of the matter said last month.

When BlackBerry formed the board committee to explore a
possible sale, Fairfax CEO Prem Watsa stepped down as a
director. That allowed the Toronto businessman to begin
discussing a local bid for the smartphone maker without
potential conflicts of interest. Fairfax held a 9.9 percent
stake in BlackBerry as of June 30.

Pension Talks

A senior executive from Fairfax has been contacting
Canada’s largest pension fund managers to discuss collaborating
on a bid for BlackBerry, said the person familiar with the
matter, who asked not to be identified because the talks are
private. No specific proposal, sales or valuation figures have
been put forward, the person said.

The three largest pension fund managers in the country are
Canada Pension Plan Investment Board, Caisse de Depot et
Placement du Quebec and Ontario Teachers’ Pension Plan, which
together manage more than C$500 billion in assets.

Representatives from the three funds declined to comment.
The Globe and Mail reported earlier that Fairfax’s buyout plan
had received a “cool” response from pension plans.

Swaps to insure Fairfax debt against default indicate
declining risk and lower odds the company will lead a buyout
that could saddle Fairfax with debt. The contracts fell eight
basis points this week to 164 basis points, the narrowest in
almost seven months.

Credit-default swaps narrow as confidence in a borrower
improves and the cost of protecting the debt drops. Swaps pay
the buyer face value if a borrower fails to meet its
obligations, less the value of the defaulted debt. One basis
point equals $1,000 annually on a contract protecting $10
million of debt.

Disappointing Sales

BlackBerry’s board began discussing a possible sale after
its revamped BlackBerry 10 operating system struggled to gain
traction. The company sold almost 1 million fewer smartphones in
the May quarter than analysts had projected, contributing to a
loss in the period. BlackBerry, which reports its next round of
results on Sept. 27, has said it expects to post another loss in
the latest quarter.

The company also has cut its sales force and moved some
staff to the U.S. in a bid to bolster its new devices.
BlackBerry has eliminated 60 jobs as part of the move, Emery
said this week. The redeployment of salespeople is intended to
help get employees closer to key customers in the U.S., he said.

BlackBerry shares had rallied late last year on optimism
that the new operating system would revive the company’s
fortunes. Between BlackBerry’s last earnings report in June and
yesterday, the stock has tumbled 24 percent. They fell 2.8
percent to $10.63 at 10:36 a.m. in New York.